Up to Speed on Appraisal Changes?
A notice of proposed rulemaking in December 2018 sought comments that would amend the appraisal regulations pursuant to Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA). A final rule (84 FR 53579) was published October 8, 2019 where three topics were addressed. One is effective now and the other two in January 2020.
The final rule, published by the OCC, FDIC and Federal Reserve rule increases to $400,000 (from $250,000) the threshold for requiring an appraisal by a state certified or licensed appraiser for residential real estate transactions. This portion of the final rule became effective on October 9, 2019. The following factors were considered when the federal regulators set the new threshold amount:
Federal regulators took a conservative approach consistent with general measures of inflation across the economy reflected in the CPI since 1994.
Federal regulators decided that automatic adjustments to the threshold or agency commitments to set timetables for future threshold increases would not be appropriate on the basis that they already periodically review their regulations to identify outdated or unnecessary regulatory requirements. Also, they are required by Title XI of FIRREA to weigh safety and soundness implications regarding any proposed threshold increase and obtain CFPB agreement.
The new threshold does not represent a threat to the safety and soundness of financial institutions. This determination was based on supervisory experience regarding causes of losses at financial institutions, analysis of available HMDA data, and the fact that evaluations would be required for transactions below the new threshold.
As part of the final rule, and to be consistent with current references to appraisals for residential real estate in the appraisal regulations and in Title XI, and to provide clarity, the definition of a residential real estate transaction is defined as a real estate-related financial transaction secured by a single 1-to-4 family residential property.
Changes Effective January 1, 2020
Regulatory agencies, under the final rule and effective January 1, 2020, require that a financial institution entering into residential real estate transactions at or below the new residential real estate appraisal threshold of $400,000 obtain evaluations that are consistent with safe and sound banking practices unless the financial institution chooses to obtain an appraisal for such transactions.
Even though evaluations are not subject to the same standards as appraisals in terms of structure and content or the preparer’s training and credentialing requirements, evaluations must be consistent with safe and sound banking practices, and federal regulators recognize this. The expectation has not changed where financial institutions are to continue using a risk-focused approach when considering whether to order an appraisal for transactions that fall below the new threshold.
In section 103 of EGRRCPA, Title XI was amended in 2018 to add a rural residential appraisal exemption. Financial institutions are not required to obtain an appraisal if:
The property is located in a rural area;
The transaction value is less than $400,000;
The financial institution retains the loan in portfolio, subject to exceptions; and,
Not later than three days after the Closing Disclosure is given to the consumer, the financial institution or its agent has contacted not fewer than three state certified or state licensed appraisers, as applicable, and has documented that no such appraiser was available within five business days beyond customary and reasonable fee and timeliness standards for comparable appraisal assignments.
Regulators have recognized the shortage of comparable sales data in rural areas and that it has been a long-standing issue. As a result, financial institutions are required to obtain evaluations when the rural residential appraisal exemption is used. The final rule clarifies that financial institutions in rural areas could opt to rely on the more broadly applicable exemption for transactions of $400,000 or less in place of the rural residential appraisal exemption and will not need to meet the additional criteria required under the rural residential appraisal exemption.
Also required under the final rule is that financial institutions review appraisals for federally related transactions for compliance with USPAP. Financial institutions are recommended to review existing appraisal review policies and incorporate additional procedures for subjecting appraisals for federally related transactions to appropriate review for compliance with USPAP, as needed.
Move Over Millennials, Gen Z is Ready for Homeownership
By Jann Swanson, MortgageNewsDaily - November 2019
Apparently it is time to shift our total attention from the Millennial generation. A new survey from Freddie Mac introduces the housing hopes and dreams of its successor - Generation Z. This group, defined as those Americans who are now aged 14 to 33, is smaller than the massive cohort that preceded them, partially because the generation is defined narrowly as those born over a ten-year span as opposed to the usual 15-year definition, 1981 to 1996, of Millennials.
The survey was conducted online last summer with 1,531 members of Generation Z. Two-thirds of the sample, which contained both Hispanic and African American respondents and was available in Spanish, was recruited through parents, the remainder were recruited directly. The sample was dived into two groups by age, those 14 to 17 and those 18 to 23 with the latter group having a slightly larger share.
The company says "The dream of homeownership is alive and well" within the generation. It has a more positive perception of what it means to own a home than Millennials at the same age. Eighty-six percent want to own a home someday and 89 percent believe it is at least somewhat likely they will be able to do so. Among that latter group the median estimate as to when they will achieve that goal is age 30, three years younger than the current median homebuying age of 33.
Of note, more than one-quarter of respondents think that owning a home at any point in their life seems out of reach financially. This is higher among those who report that money has been a stressful topic in their family (36 percent). It is also higher among those currently living in a rented home.
Freddie Mac's survey data and other research show that the generation believes owning a home provides more privacy, control and independence than renting. They feel owning a home is a sign of success, is something to be proud of and provides stability and/or financial security.
Comparing this survey with earlier ones, Freddie Mac found 19 percent of Gen Z respondents seeing renting as more appealing than buying compared to 30 percent of Millennials at the same age. Fewer see renting as making one feel part of a community (33 percent of Gen Z vs. 39 percent of Millennials) or that it costs less to rent than to buy (40 percent compared to 51 percent.)
While they want and plan to own a home, they view access to that goal more negatively than did Millennials in a separate survey. Thirty-eight percent thought homeownership was less accessible than it was three years ago compared to 31 percent of Millennials who were asked the question.
High home prices was the most commonly cited barrier to homeownership. Fewer than half of the older share of Gen Z saw student debt as a major hurdle, but that may be because many in that age group would not yet have yet completed college.
"The data show that while members of Gen Z clearly aspire to homeownership, they are realistic about potential barriers and understand the potential benefits of renting," said David Brickman, CEO of Freddie Mac. "Although these results are good news for the housing markets, they also highlight the challenges many in Gen Z will face as they enter the market to rent or buy."
The survey data show that about three-quarters of Gen Z would choose to live in a single-family home over other types of homes, and more than half (59 percent) report their ideal home would be medium-sized. Additionally, 35 percent would choose to live in a suburb of a big or medium-sized city, with an additional 30 percent preferring to live in a rural area or small town.
"One of the biggest challenges Millennials face today is the lack of affordable starter homes," said Sam Khater, Freddie Mac's Chief Economist. "Given Gen Z's desire for suburban medium sized homes close to urban areas with amenities, demand for entry-level homes will intensify."
The survey shows the generation has received financial education at home, but 65 percent say they are not confident in their knowledge of the mortgage process. Perhaps surprisingly for this digital generation, when they are ready to purchase their first home, a significant majority of Gen Z (79 percent) would rather have face-to-face interactions with professionals than carry out the process fully online. The majority would consult parents (71 percent) to obtain more information while around one-third to half would talk with a real estate agent, family or friends or a bank or mortgage lender. Slightly more than half would utilize the internet.
Brickman added, "It's clear that many in Gen Z reflect the times in which they have lived. They were generally young children during the economic crisis of 2008 but have grown up during a remarkable period of sustained economic growth and prosperity. In general, they are more financially educated and aware than previous generations, and they appear to have a clear understanding of the benefits offered by our nation's housing market - and some of its challenges. We will continue to follow this emerging generation closely, to ensure Freddie Mac is leading the industry towards new and innovative ways to serve them."
Conforming Loan Limit Increased to $510,400
By Jann Swanson, MortgageNewsDaily - November 2019
The conforming loan limit for most of the U.S. will, quite predictably, move higher on January 1. The Federal Housing Finance Agency announced on Tuesday that the maximum origination balance for loans purchased or acquired by the GSEs Fannie Mae and Freddie Mac during 2020 will increase to $510,400. The conforming limit for 2019 is $484,350.
In areas where the median home value is 115 percent of the new baseline loan limit the conforming limit is higher than that baseline but cannot exceed 150 percent of it. That calculation caps the loan limit for these "high cost" areas at $765,600, or 150 percent of $510,400. The high cost limit this year is $726,525. Special statutory provisions establish different loan limit calculations for Alaska, Hawaii, Guam, and the U.S. Virgin Islands. For 2020 the limit in these areas is the same as for the U.S. as a whole, $765,600 for one-unit properties.
The Housing and Economic Recovery Act (HERA) requires that the baseline conforming loan limit be adjusted each year for Fannie Mae and Freddie Mac to reflect the change in the average U.S. home price. Earlier today, FHFA published its third quarter 2019 FHFA House Price Index (HPI) Report which estimated the annual gain in home prices over the previous four quarters at an average of 5.38 percent. That percentage is reflected in the new baseline limit. As a result of generally rising home values, the increase in the baseline loan limit, and the increase in the ceiling loan limit, the maximum conforming loan limit will be higher in 2020 in all but 43 counties or county equivalents in the U.S.
There are higher limits for properties that contain two, three, or four units. The baseline limits for multi-unit properties range from $653,550 to $981,700.
FHA and VA loan limits typically are identical to those issued for Fannie Mae and Freddie Mac but have not yet been announced.
2020 Real Estate Outlook: Expert Predictions For Mortgage Rates, Home Prices, Tech And More
Aly J. Yale - Forbes.com
The 2019 housing market has been one of low rates, high demand and limited supply—particularly on the lower-priced end of the market.
Will 2020 be more of the same? According to experts, yes and no.
We spoke to six mortgage, real estate, and housing professionals. Here’s what they say is in store for the year to come:
Mortgage rates will stay low—or maybe go lower.
Mortgage rates currently sit at 3.75%, according to Freddie Mac’s most recent numbers—nearly a 1% difference from the monthly average a year ago. The drop in rates caused a surge in refinancing over the last few months, and purchase activity ticked up as well.
According to Odeta Kushi, deputy chief economist at title insurance and settlement services provider First American, there’s “emerging consensus” that rates will remain low next year—likely somewhere between 3.7% and 3.9%, she says.
Forecasts from Freddie Mac and the Mortgage Bankers Association back this up, both predicting 2020 rates within this range. Fannie Mae actually predicts rates will clock in even lower, vacillating between 3.5% and 3.6% throughout the year.
Sean Hundtofte, chief economist for online mortgage lender Better.com, says that thanks to these continued low rates, refinancing should remain a popular choice in the new year. And for homebuyers, he says, they’ll “be able to afford more house than they would have otherwise.”
Prices will keep on rising.
Home prices will continue their climb upward, according to experts, largely thanks to tight inventory and high demand.
According to the latest home price forecast from property data firm CoreLogic, home prices should tick up by 5.6% by next September—up from the just 3.5% jump we saw this year.
As Daryl Fairweather, chief economist for real estate brokerage Redfin, explains, “Right now we aren’t seeing a ton of new listings. Without more listings coming on the market, there will be more competition starting off in early 2020 and that will lead to more price pressure.”
The problem will be worse on the lower end of the price spectrum. According to Ralph DeFranco, chief economist for mortgage insurer Arch MI, entry-level home prices will rise higher than incomes next year—and disappointing construction numbers will only compound the issue.
“Low interest rates and a shortage of starter homes will continue to push up prices,” DeFranco said. “This is especially the case for lower price points, since builders have tended to focus on more expensive, higher-profit houses and less on replenishing low inventories of entry-level homes.”
It seems the price growth may continue beyond 2020, too. Data from Arch MI shows the chance of home price declines at a mere 11% for the next two years. There are currently no states or metro markets projected to see prices declines in that period.
Inventory will be tight.
Housing inventory is going to remain limited for much of 2020, experts say. And interest rates and record-high homeownership tenures are a big part of the problem.
According to recent data from Redfin, the average homeowner is staying in their home 13 years—up from just eight years in 2010. In some cities, homeownership tenures are as high as 23 years.
As Kushi explains, “You can’t buy what’s not for sale.”
“While historically low rates increase buying power and make it more likely for potential buyers to attain their homeownership dream, they also increase the risk of a long-run housing supply shortage, which we predict will continue through 2020 and possibly intensify,” Kushi says. “As first-time buyers lock-in these historically amazing rates and existing owners refinance—in droves in recent months, everyone will stay put and not sell. Where’s the incentive?”
There’s a chance that increasing construction may offer some relief in the inventory department. Last month’s residential construction report from the Census Bureau saw building permits and housing starts both increase over the year. At the same time. builder confidence was at a 20-month high, according to the National Association of Home Builders.
Still, it may not be enough to meet the needs of today’s buyers, Kushi says.
“As for building new homes, builders have a reason to be cautiously optimistic, given pent up demand stemming from a strong economy, lower mortgage rates and continued wage growth,” she says. “However, building pace still lags behind historical standards, and it will likely take months before we can begin building at a pace that will support the demand.”
Millennials will keep up their homebuying streak, while Boomers hold up inventory.
Data from Realtor.com shows Millennials made up a whopping 46% of all mortgage originations in September—up from 43% one year prior. Meanwhile, shares of Baby Boomer and Gen X mortgage activity declined.
It’s no wonder, either. Millennials rank homeownership as one of their top goals in life—higher than even marrying or having kids—and with interest rates low and incomes up, it’s the right time to buy a home for many.
Unfortunately, they face an uphill battle. As Kushi explains, “Looking ahead, Millennials may be entering a tougher housing market in 2020. A limited supply environment, combined with growing demand and increased competition for homes, is accelerating home price growth once again.”
The Baby Boomer generation is part of the challenge for this younger cohort, as many are choosing to age in place—keeping more homes off the market than ever before.
In fact, a recent study from Freddie Mac shows that if today’s older adults—those born between 1931 and 1959—behaved like earlier generations, then an additional 1.6 million homes would have hit the market by the end of the last year.
As Kushi puts it, “The fate of Millennial homebuying to close out 2019 and into 2020 will depend on two factors: if there is anything for them to buy, and whether rising purchasing power stemming from increasing income and historically low mortgage rates can continue to outpace house price appreciation.”
The suburbs will be a big draw thanks to Millennial demand.
As home prices skyrocket, cash-strapped Millennials are looking toward more affordable places to put down roots—namely smaller, suburban towns on the outskirts of major metros.
The trend has led to an uptick in “Hipsturbia” communities—live-work-play neighborhoods that blend the safety and affordability of the suburbs with the transit, walkability and 24-hour amenities of big cities.
Melissa Gomez, an agent with ERA Top Service Realty in New York, has seen the trend in action.
“Being based in the boroughs of NYC, I see Hipsturbia happening every day,” she said. “As cities like New York become increasingly expensive, younger people and families are looking for more bang for their buck with real estate, schooling and everything in between. And slowly but surely, it is breathing new life into small towns outside of major urban hubs.”
The Urban Land Institute recently named Histurbia as one of its top real estate trends to watch in 2020.
As the report explains, “If the live-work-play formula could revive inner cities a quarter-century ago, there is no reason to think that it will not work in suburbs with the right bones and the will to succeed.”
The industry will continue to digitize.
The mortgage and real estate spheres have been moving away from their manual, paper-laden processes in recent years, and 2020 will only see that trend expand further—especially as more tech-savvy Millennials enter the market.
As Hundtofte explains, “In 2020, we’ll continue to see Millennials growing their share of the mortgage market, which in turn, will serve as a catalyst to lenders to continue to rapidly innovate their technology offerings to meet the expectations of an audience more accustomed to an Amazon, Venmo-like experience.”
Though plenty of tech offerings already exist—from e-signing and e-notary software to fully-digital mortgage applications, automated income verification and more—Hundtofte says we’ll probably see these solutions start teaming up in the new year.
“Rather than compete with each other, we’ll see companies combining technologies across the board, from startups partnering with startups to startups partnering with legacy institutions,” he says.
Aaron Block, the co-founder of MetaProp—a venture capital fund focusing solely on real estate technology—says to keep an eye on the Airbnb and WeWork brands specifically in this regard.
On WeWork’s recent IPO blunder, Block says, “One major positive outcome of this year's ‘DiePO’ is the plethora of ‘proptech’ innovation talent hitting the street. Some exciting new companies are being formed as we speak.”